Political unrest in Syria and Egypt are hogging the headlines,. but equity markets in the Middle East and North Africa have proved resilient throughout the troubles, according to new research.
The MSCI Arabian Markets Index had returned 7.3% in US dollar terms year-to-date, ahead of the 5% rise in the wider MSCI Frontier Markets Index over the same period.
Ghadir Abu Leil-Cooper, Head of EMEA Equities for Barings Asset Management said, “The developing nature of regional equity markets means that analyst coverage of the MENA region isn’t always as comprehensive as elsewhere and we believe this provides significant opportunities to invest in companies which are undervalued and unrecognised by the market.
“Even throughout the recent period of political uncertainty, a combination of top-down asset allocation and bottom-up company research has thrown up some attractive investment opportunities, with the Baring MENA Fund rising by 18.8% in US dollar terms in the year-to-date. This is not only significantly ahead of the MSCI Arabian Markets Index, but also surpasses returns generated by both emerging and global equities.”
Elsewhere, resource-rich economies continue to benefit from oil prices, meaning that countries such as Qatar and Saudi Arabia can convert income in to infrastructure projects.
Most MENA countries have announced plans to build new hospitals, airports and desalination and electricity plants – so Barings suggests selected exposure to beneficiaries of rising infrastructure spending across the region.
“At the company level, it is important to recognise that MENA is home to a number of global companies such as Dubai-based port operator DP World. These firms continue to gain recognition on the global stage, grow market share and deliver impressive operational results, notwithstanding the uncertain outlook for global growth,” said Ghadir.
“Looking ahead, we expect political tensions to remain elevated in certain countries over the short-term. However, the investment case remains attractive and we shall continue to view any periods of volatility as an opportunity to acquire companies with good long-term growth prospects at reasonable valuations.”
Ghadir explained that economically, MENA countries continue to deliver strong and sustainable growth.
“The region has a highly favourable demographic profile – around one-third of people in the region are under the age of 15 – and this should underpin long-term demand for housing, healthcare and consumer goods,” she said.
“Our exposure to MENA’s young consumers is principally through the financial sector. Compared to their counterparts in the developed world and other global emerging markets, consumers are underleveraged and we believe regional banks have the potential to rapidly increase their services in areas such as personal banking, mortgages and insurance products.”